Glencore's Glasenberg talks up copper's prospects

By Scott Patterson

Published: Oct 5, 2015 6:24 am ET

Glencore PLC Chief Executive Ivan Glasenberg, speaking publicly for the first time since his company's shares plunged a week ago, said he believes copper prices will ultimately rise as mine supplies are pulled from the market.

Mr. Glasenberg, speaking in central London, said the Swiss mining giant's plans to take 400,000 tons out of the market with the shutdown of two copper mines in Africa, announced in its sweeping balance-sheet restructuring plan last month, "should have an effect on the price" as demand ultimately outweighs supplies.

"The funds are playing the commodity cycle," Mr. Glasenberg said. "But in the end the fundamentals will prevail," noting that "demand is still there."

Mr. Glasenberg said his company has seen a "massive destocking around the world" this year in commodities such as copper as prices decline. He said there is only three weeks supply of copper stock available in warehouses, which he said is "the lowest inventory I've seen in copper stocks for many years."

Glencore is particularly vulnerable to sliding copper prices. The company produced 730,900 tons of copper in the first half of 2015. A 10% decline in copper from where it stood in the first half of the year would erase about $1 billion from Glencore's adjusted earnings, according to estimates by Liberum Capital analyst Ben Davis. On the other hand, a 10% gain would be a boon for Glencore and help ease fears about its high debt levels.

Glencore last month said it planned to shutdown one copper mine in the Democratic Republic of the Congo and another in Zambia for 18 months while it upgrades the infrastructure. Some had questioned whether the company would get pushback from the governments of the two countries amid concerns that the shutdowns would hurt employment.

Mr. Glasenberg said Monday at the FT Africa conference that he "must congratulate both the president of the DRC and Zambia because they understood what we're doing." Since the mines were unprofitable, the countries weren't getting a decent tax return on the production of the mines, he said.

"Long term it is better for them when we do dig it out of the ground and they'll get more revenue, more taxation," he said. "There is no reason to keep digging the stuff out of they round when you're not making a decent margin," Glencore's CEO said.

Plunging commodity prices have sapped Glencore's earnings this year. In the first six months, it posted a loss of $676 million, and its high debt levels have sparked concerns that the company could be slapped with downgrades by ratings firms if its earnings fall much further.

Mr. Glasenberg has been scrambling to allay investor fears about the impact of sliding commodities. He has been jetting around the world, visiting mines, investors, banks and trading offices trying to gather information and allay market fears. The CEO believes markets have overreacted to the firm's situation, though he has noted the risks of carrying too much debt and owning mines at a time of weak commodity prices, according to people who have spoken with him in recent weeks.

The company's shares and bonds have been whipped around over the past week by those fears, including a 29% drop a week ago that has since been erased. The stock was up around 7.4% in morning trading in London, thought the shares are still down by nearly two thirds so far this year.

Glencore executives are struggling to stop the bleeding by selling assets and cutting billions in debt. Last month, Glencore raised $2.5 billion in a share offering. It also said it would suspend its dividend and raise cash by selling assets

Glencore says its finances are solid and credit lines from more than 60 banks are intact. Banks have appeared to stand by those credit agreements.